IRS states repayment of CARES withdrawals are treated as a rollover to a qualified retirement account. Can I pay the money back to my IRA if withdrawn from my 401K plan?

[sbmentlick]

I see where someone else asked this question in 2021 but no answer as to whether it creates a taxable event.

[FangxiaL]

If you took the money out in 2020 and before 12/31/2020, you certainly can put all the money back within three years without paying any penalty and taxes. But many taxpayers (including myself) are paying it back 1/3 every year in 2021, 2022, and 2023 to avoid taxation. Many others decide to pay tax on 1/3 each year without putting the money back. 

If you did not do it last year, you can go back to amend your 2020 tax return to indicate that you have paid it back.

[sbmentlick]

thank you, I understand I can pay it back but instead of paying back to the 401K where I withdrew it from (it was a Covid withdrawal) - can I put it into my IRA instead?

[DawnC · Accepted solution]

Yes, you can repay the funds to any qualified retirement account.  

The CARES Act provides that any part of a COVID-19-related distribution is eligible for tax-free rollover treatment to be recontributed to a qualified plan within three years of receipt and therefore excluded from income.   Any amount recontributed is treated as a direct tax-free rollover where eligible or as an indirect rollover with the typical 60-day requirement adjusted to three years.   A recontribution is not subject to the one-rollover-per-year limitation. 

[Sleekster]

Can you explain exactly how to amend the 2020 and 2021 returns as I've recontributed in 2022 the full amount of my 2020 withdrawal.

I chose to distribute it 1/3 each year, but am unsure how and where to specify repayment in Turbotax Online.

I created an amended return for both 2020 and 2021 tax years, but there is no adjustment in the refund amount when I enter the 1/3 recontribution amount.

Thank you for your help in advance.

[Critter-3]

Ok ... if you make all the repayment in 2022 then :

On the 2022 return you will mention none of this.

On the 2021 return ... you must amend it to remove the 1/3 payment (if you have not filed it yet).

On the 2020 return ... you must amend it to indicate the entire amount was repaid.  

You will see a difference on the 2020 & 2021 returns if you do this correctly on the 1040X.

Look at the form 1040X …

Column A should have the figures from the original return, Column C the corrected figures and Column B the differences between the other 2 which needs an explanation on page 2 of the form 1040X.

If you completed it correctly you will see an entry on either line 16 OR 18:

On line 16 should be the amount you paid with your original return. If you paid nothing already then this line should be zero.

On line 18 should be the amount of your original refund you received.  If you have not received your refund yet then you need to wait for it.  If the refund changes from what you expected then this line must reflect that change.

Then you will see your extra refund on line 22 OR  the new balance due you need to pay on line 20.

[fanfare]

Be careful, any repayment made in in 2023 must be prior to the three year anniversary date of your 2020 distribution.

Your custodian should have a form for you to fill out  with a box to check "COVID  distribution repayment"

Repayment into any Traditional IRA is allowed.

@sbmentlick